What is the working principle of a transformer?

A transformer works on electromagnetic induction - when AC current flows through the primary winding, it creates a changing magnetic flux in the iron core. This changing flux links with the secondary winding and induces a voltage according to Faraday's law. The voltage ratio equals the turns ratio: V1/V2 = N1/N2. Transformers only work with AC because DC produces constant flux, inducing no voltage in the secondary.